What’s next for Brexit?

A no-deal Brexit – a possibility since the U.K. Parliament rejected Prime Minister Theresa May’s deal to withdraw from the European Union earlier this week – could lead to a slowdown in the global economy or a recession, says Stanford scholar Christophe Crombez.

Stanford scholar Christophe Crombez sees few good options for the United Kingdom as it struggles toward a Brexit arrangement. (Image credit: gOd4ather / Shutterstock)

Here Crombez, a senior research scholar at The Europe Center of the Freeman Spogli Institute for International Studies, shares his thoughts on the economic consequences if the United Kingdom withdraws from the European Union at the late March deadline without a deal in place. The split, or Brexit, is the response to the June 2016 referendum that saw 52 percent of British voters calling for a break with the European Union.

Crombez specializes in EU politics and business-government relations in Europe. His research focuses on EU institutions and their impact on policies, EU institutional reform, lobbying, party politics and parliamentary government.

For the U.K. to leave the EU, Article 50 of the Lisbon Treaty had to be invoked, which sets a two-year timetable for negotiating departure terms. With a March 29 deadline now looming, what’s next for Britain’s and Europe’s future?

That’s hard to predict. Nobody really knows. First, the U.K. could try to get another deal from the EU. Such a deal would be very similar to the deal that was rejected, though. The EU is unlikely to make any significant concessions. Second, the U.K. could hold another referendum. Depending on the question that is then asked, this could lead to the approval of the deal that was just rejected by the [House of] Commons, Brexit without a deal, or no Brexit. Third, inaction could lead to Brexit without a deal. In any case it seems quite likely that the March 29 deadline will be extended by a few months.

Christophe Crombez (Image credit: Courtesy FSI)

What has made the Brexit negotiations so challenging?

Mainly the fact that while the U.K. narrowly voted for Brexit in a referendum in 2016, those in favor of Brexit had very different ideas in mind about the future relationship with the EU. Theresa May’s government made no progress in the past two and a half years in articulating a clear vision for the future relationship, let alone in uniting people behind such a vision. To put it differently, the U.K. did not know what it wanted and that made it very difficult for the EU to negotiate with it. The underlying problem, of course, was that any new arrangement would be worse for the U.K. and the EU than the current one.

The EU is preparing for a no-deal Brexit. What would that look like?

It would be a logistical nightmare at the borders. Goods would need to be checked at the U.K.-EU border, which would lead to long waits. It would mean going back to the 1980s. Trade between the EU and the U.K. would decrease as a result, leading to lower growth on both sides, or even a recession. Companies would need to reorganize their supply chains.

How would a no-deal Brexit impact the global economy?

The EU is one of the three main players in the world economy. If its economy is suffering, the global economy is affected as well. If at the same time we witness a slowdown in China and the U.S., the Brexit crisis makes it harder to get out of the slowdown.

Would a no-deal Brexit be better than a bad-deal Brexit? What would a bad-deal Brexit look like?

For the EU, a bad deal would be one that lets the U.K. pick and choose which parts of the single market it wants to be part of. That would lead to the unraveling of the EU and would make all member states worse off. That would be worse for the EU than no deal. For the U.K., no plausible deal is worse than no deal. The U.K. is in a very weak bargaining position. The EU accounts for half of its trade. For the EU that percentage is far lower.

What would a no-deal Brexit mean for American businesses?

It would complicate matters for its exports. It would now have to deal with two markets with different rules rather than one single market. On the other hand, a reduction in trade between the EU and the U.K. could lead to some extra export opportunities for American business. Overall it would, of course, suffer from a slowdown in the EU and U.K. economies.

What trade policies are economically important for a successful Brexit deal?

The closer the future trade relations between the U.K. and the EU, the better it will be for both. The best scenario would be that, even if Brexit occurs, the U.K. remain in the single market and customs union. That is not an objective that the current government has pursued, however, under pressure from the right wing of the Conservative Party.

Why has the backstop – an assurance there will not be a hard border between Northern Ireland and the Republic of Ireland – been such a sticking point during negotiations?

Understandably the EU has defended the interests of Ireland with respect to its border with the UK. Ireland does not want border controls and wants people and goods to move across the border unhindered after Brexit. The Withdrawal Agreement provides for a transition period until the end of 2020. During that time, the EU and the U.K. need to work out their future trade relationship. The backstop makes sure that Northern Ireland effectively stays in the single market and customs union if no agreement is reached during the transition period. The right wing of the Conservative Party wants to limit the backstop in time. They want no part of the U.K. to stay in the single market and customs union. They certainly don’t want that to be the fallback arrangement if no deal is reached during the transition period.

Donald Tusk, president of the European Council, posed this question: “If a deal is impossible, and no one wants no deal, then who will finally have the courage to say what the only positive solution is?” What do you think he meant by this?

I agree that the only reasonable solution is that the U.K. remain in the EU. However, I don’t completely agree with his analysis. It seems that the right wing of the Conservative Party in the U.K. prefers no deal at all. They deprived May of a majority in Tuesday’s vote preferring just that, leaving without a deal. At the same time many policymakers and even voters on the EU side want to put Brexit behind them and move on. They don’t look forward to the U.K. postponing or even canceling Brexit and continuing to absorb a lot of time and effort to attend to its special needs.

Stanford Vice Provost and Dean of Research Kathryn Moler wants all research resources to be as readily available as books in a library. This model would enable faculty and students to pursue the most innovative research in flexible, collaborative teams.